Punitive damages are awarded by courts when they deem that compensatory damages are inadequate.

Even though the awarding of punitive damages have long been recognized by law, they are subject to constitutional scrutiny.  Though states have wide powers over granting punitive damages, they are subject to limitations.  States, while exercising their powers have to strictly comply with the “Due Process” rules.  The Due Process Clause of the Fourteenth Amendment prohibits a state from imposing grossly excessive punishment on a tortfeasor.  However, punitive damages may be imposed properly to further a state’s legitimate interests in punishing unlawful conduct and deterring such behavior.

A state’s power in imposing punitive damages is limited to the state alone.  It need not be concerned with  imposition of punitive damages outside its jurisdiction.

The courts have recognized that punitive damages may properly be imposed to further a state’s legitimate interests in punishing unlawful conduct and deterring such behavior.  Courts have also suggested that the common law method of imposing punitive damages is warranted.  According to courts, the awarding of punitive damages is not a finding of fact, but an expression of moral condemnation.

In Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (U.S. 1991), the petitioner was the insurer’s agent who solicited and wrote policies for a municipality and misappropriated premium moneys paid.  The insureds (respondents) filed suit for fraud.  Liability and punitive damages were awarded by the jury.  Upon appeal, the Supreme Court affirmed the decision.  A writ of certiorari was filed by the petitioner and was granted.  According to the court, petitioner had prior notice of possible frauds by agent and that state common law allowed corporate liability for compensatory and punitive damages for fraud where its employee, in this case agent, effected fraud within the scope of employment.  It held that award of punitive damages was not a violation of due process.  While deciding the case, the court held that “unlimited jury discretion or unlimited judicial discretion in the fixing of punitive damages may invite extreme results that jar one’s constitutional sensibilities. There is no mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case. General concerns of reasonableness and adequate guidance from the court when the case is tried to a jury properly enter into the constitutional calculus.”